Following the overnight sell-off, the S&P 500 is poised to open below the 5,200 level for the first time since early May.
According to BTIG analysts, there is an unfilled gap at 5,073 that could see some activity, and below that, the April lows and the 200-day moving average (DMA) in the 4,975-5,000 range are expected to provide strong support.
At the same time, Nasdaq futures have dipped below their 200 DMA for the first time since March 2023.
Historically, the first test of a rising 200 DMA is defended, at least by the close. However, it’s worth noting that the Nikkei cut through its 200 DMA on Friday and is now 15% below it. The next potential support for the Nasdaq is around the April lows at approximately 17,000, BTIG notes.
However, analysts believe that volatility is the most significant aspect of the overnight trade.
The spot VIX is above 60 as of 8:25 a.m, and the VIX curve is inverted by 30 points (spot versus the second month).
"On a closing basis, this exceeds the worst inversion seen during the COVID crash (-29),” analysts wrote. "The record (closing basis) in '08 was -35. The difficulty is that this could go wider intraday before settling out by the close, so again a very fluid situation."
Meanwhile, Russell futures are experiencing a full 'false breakout' but are also nearing their 200 DMA at 2,000. Below this level, there is a risk of dropping to the 1,925-1,950 range, the brokerage firm highlighted.
US stock futures plummeted sharply Monday as the global stock selloff intensified, driven by fears that the Federal Reserve is acting too late to support a slowing economy.
The downturn was sparked by Friday's data showing a weakening US jobs market, triggering a key recession indicator. Moreover, concerns over high valuations from the AI boom and rising tensions in the Middle East are contributing to the risk-off sentiment.